It rains in the wet in Latin America. The recession caused by the pandemic, the largest of which there are records, is the culmination of a five-year period of low growth and decoupling from the path of the rest of emerging countries. At the end of last year, when a pandemic was nowhere near entering the risk matrices of governments and large corporations, the outlook was anything but rosy: the region deepened its stagnation with the least possible growth (0.1%) and put a sad ending to its worst economic five-year period since the end of World War II. But the health crisis has finished throwing everything away: Latin America and the Caribbean are today the crudest face of the crisis and are exposed to a decline of almost two decades in their main development indicators if things do not improve soon.
Effects of the pandemic
in Latin America
GDP per capita
In constant dollars
from 2010
Poverty
In %
of the population
9,500
9,000
8,500
8,000
7,500
7,000
6,500
6,000
fifty
Four. Five
40
35
30
25
2001
2005
2010
2015
2020
(prev.)
Extreme poverty
In millions of people
100
90
80
70
60
fifty
40
30
twenty
10
0
96
68
2019
2020 (prev.)
Prevalence of extreme poverty
In% of the total population
14
13
12
eleven
10
9
8
7
6
13.5
12.2
7.8
2001
2005
2010
2015
2020
(prev.)
GDP variation rate and evolution
coronavirus
In %
two
0
-two
-4
-6
-8
-10
1.3
–1.8
–5.3
–9.1
Dec 2019
Feb 2020
Apr. 2020
Aug 2020
Source: Economic Commission for Latin America
and the Caribbean (ECLAC)
THE COUNTRY
Effects of the pandemic
in Latin America
GDP per capita
In constant dollars
from 2010
Poverty
In %
of the population
9,500
9,000
8,500
8,000
7,500
7,000
6,500
6,000
fifty
Four. Five
40
35
30
25
2001
2005
2010
2015
2020
(prev.)
Extreme poverty
In millions of people
100
90
80
70
60
fifty
40
30
twenty
10
0
96
68
2019
2020 (prev.)
Prevalence of extreme poverty
In% of the total population
14
13
12
eleven
10
9
8
7
6
13.5
12.2
7.8
2001
2005
2010
2015
2020
(prev.)
GDP variation rate and evolution
coronavirus
In %
two
0
-two
-4
-6
-8
-10
1.3
–1.8
–5.3
–9.1
Dec 2019
Feb 2020
Apr. 2020
Aug 2020
Source: Economic Commission for Latin America
and the Caribbean (ECLAC)
THE COUNTRY
Effects of the pandemic in Latin America
Extreme poverty
GDP per capita
In constant 2010 dollars
Poverty
In% of the population
In millions of people
9,500
9,000
8,500
8,000
7,500
7,000
6,500
6,000
fifty
Four. Five
40
35
30
25
100
90
80
70
60
fifty
40
30
twenty
10
0
96
68
2001
2005
2010
2015
2020 (prev.)
2019
2020 (prev.)
Prevalence of extreme poverty
GDP variation rate and evolution
coronavirus
In% of the total population
In %
two
0
-two
-4
-6
-8
-10
14
13
12
eleven
10
9
8
7
6
13.5
1.3
12.2
–1.8
–5.3
7.8
–9.1
Dec 2019
Feb 2020
Apr. 2020
Aug 2020
2001
2005
2010
2015
2020 (prev.)
Source: Economic Commission for Latin America and the Caribbean (ECLAC)
THE COUNTRY
End of 2008. While the US and Europe set their eyes on risk premiums and Stock Exchanges that are trading in a huge recession, Latin America has all the ropes to become the next trendy economy. He has five consecutive years of growth and the looming crisis will hit him in 2009, but 2010 will not only be buoyant: it will be one of the best in its recent history. These are years of wine and roses on the back of the bonanza of raw materials and the pull of China. Brazil's B slips into the newborn acronym of Emerging Powers (BRICS); Mexico seems, at last, to take off; and Argentina leaves behind the specter of 2001. Poverty falls behind the improvement of incomes and redistributive social policies that are spreading, for the first time, through the main countries of the most unequal bloc in the world. Things, in short, begin to march.
Twelve years later, that progress is more at risk than ever. After the commodity boom, years of stagnation would come, also in the social sphere, in which the combustion of the economy was already emitting gray smoke turning black. In those, the virus arrived, which will plummet Latin American GDP between 7.2% (World Bank) and 9.1% (ECLAC) this 2020. Projections that "may even fall short", according to Andrés Solimano, of the International Center for Globalization and Development. And the worst thing is that, in a crisis like this, unequalizing by nature, the hit on social indicators will be even greater: the number of people below the poverty line will go from 185 to 231 million —almost 4 out of every 10 Latin Americans— , an unprecedented figure since 2005, while extreme poverty will go from 68 to 96 million —slightly more than 15% of the population—, always according to figures from the United Nations arm for regional development.
That distant boom in raw materials was more than a mirage in the field of social policy. Several governments in the region finally began to take seriously a problem that had been unsustainable for years: huge pockets of poverty, of citizens without hope for the future in what was (and still is) the most unequal region on the planet. "Important things were done in social development, although afterwards progress slowed down," says Stephany Griffith-Jones, from Columbia University. “But with the pandemic… With the pandemic we reversed almost everything. It is tragic ”. The social counter returns to zero. “We are back to the first decade of the two thousand. An important part of the population has lost their income, and in most countries there are no social and unemployment insurance ”, adds Carlos Marichal, historian of El Colegio de México.
There are clichés that, despite being so, it is worth bearing in mind to become aware of the magnitude: the expression "lost decade" has returned with more force than ever to the analyzes of the most prominent economists in the region, and this is an indicator in itself. “Since we're not careful, this will be the next one. The next two or three years are going to be very hard, but the next ones too: a crisis of internal demand is combined with a very strong external one ”, points out Diego Sánchez-Ancochea, from the University of Oxford. "And the real risk is that there are two lost decades, not just one", completes Juan Carlos Moreno Brid, from UNAM. Isabel Saint de Malo, former Panamanian vice president and foreign minister and UNDP consultant, remains in the middle ground: the return, she says, could be 15 years ... "or more, if measures are not taken soon."
GDP variation rate in 2020
In %
Cuba
Honduras
Mexico
–8.0
–6.1
Haiti
Dominican rep
–9.0
–5.0
Nicaragua
–5.3
Guatemala
–8.3
–4.1
Colombia
Costa Rica
The Savior
–26.0
Venezuela
–5.6
–5.5
–8.6
Ecuador
–9.0
–6.5
Brazil
Panama
Peru
–9.2
–13.0
Bolivia
Central America
–5.2
–6.2
Paraguay
–2.3
Central America and Mexico
Argentina
–8.4
–10.5
–5.0
Latin america and caribbean
–7.9
Uruguay
–9.1
Chile
South America
–9.4
Source: Economic Commission for Latin America
and the Caribbean (ECLAC)
THE COUNTRY
GDP variation rate in 2020
In %
Cuba
Honduras
Mexico
–8.0
–6.1
Haiti
Dominican rep
–9.0
–5.0
Nicaragua
–5.3
Guatemala
–8.3
–4.1
Colombia
Costa Rica
The Savior
–26.0
Venezuela
–5.6
–5.5
–8.6
Ecuador
–9.0
–6.5
Brazil
Panama
Peru
–9.2
–13.0
Bolivia
Central America
–5.2
–6.2
Paraguay
–2.3
Central America and Mexico
Argentina
–8.4
–10.5
–5.0
Latin america and caribbean
–7.9
Uruguay
–9.1
Chile
South America
–9.4
Source: Economic Commission for Latin America
and the Caribbean (ECLAC)
THE COUNTRY
GDP variation rate in 2020
In %
Cuba
Honduras
Mexico
–6.1
–8.0
Haiti
–9.0
–5.0
Dominican rep
–5.3
Nicaragua
Guatemala
–8.3
Venezuela
–4.1
Colombia
Costa Rica
–26.0
The Savior
–5.6
–5.5
Ecuador
–8.6
Panama
–9.0
–6.5
Brazil
Peru
–9.2
–13.0
Bolivia
Central America
–5.2
–6.2
Paraguay
–2.3
Central America and Mexico
Argentina
–8.4
–10.5
Chile
–5.0
–7.9
Latin america and caribbean
Uruguay
–9.1
South America
–9.4
Source: Economic Commission for Latin America and the Caribbean (ECLAC)
THE COUNTRY
The flight of the Latin American plane depends, broadly speaking, on the thrust of three engines: raw materials (farm products, energy and metals: three-quarters of the block's exports), services (including tourism) and remittances (the money that they send migrants to their families, a lot that has not stopped growing in the last decade). The first has suffered a severe blow: there is no problem in depending on commodities when international trade is well oiled, but when curves come it is the first seam to jump. The second, the tertiary sector, is the great loser of a pandemic that invites, above all, to abandon physical contact and travel: the influx of visitors continues to be at a minimum, particularly targeting the small economies of the Caribbean subordinate to tourism. Only the third engine — remittances — holds the pull and, together with public spending, becomes the only and meager crutch in the region.
“If we are being so hit now, it is also because of the negative inertia that we brought. The raw material export model is fragile, especially if value is not added ”, outlines Gabriela Dutrénit, from UAM-Xochimilco. After years of promises of diversification, and despite the fact that industrial and productive development policies have not stopped gaining followers in the academic debate - not in the political one - the results are at least discreet: Latin America continues in the same.
This year's drop in per capita income, even greater than that of Western Europe, will turn the clock back a decade. But the deterioration of the poverty and inequality indicators will be even greater: if this crisis is distinguished by something, it is precisely because it is primed with the weakest link in some societies, the Latin American ones, which are highly stratified and with little social mobility. Unemployment will rise to 13.5%, even more than during the financial crisis, but in a region where half the population works informally, without any type of legal support or protection, that is only a small part of the photo.
Prices down
The region's exports dance to the beat of world trade. And, in the midst of the pandemic, they suffer from the slowdown in exchanges: with oil in free fall in the second quarter of the year (Brent went from almost 70 to 20 dollars) and minerals and farm products dropping 6% , ECLAC anticipates a 23% drop in the value of foreign sales.
The quarantines, more lax but much longer than in Europe and the US, have left millions of Latin Americans without income for weeks. And despite emergency subsidies approved by some governments, nearly all of them have had to dip into savings to survive. "The pandemic actually exhibits the weakness of Latin American welfare states," Moreno-Brid and Solimano point out in unison. “The success of the anti-tax discourse has created a vicious circle that closes the possibilities of public policies. Added to the resistance of the elites, many middle voters have bought into the discourse that a tax increase is negative, ”criticizes Sánchez-Ancochea.
Glass half full
Despite the regrets, which are many, some notes invite a slight optimism. In the financial field is the great contrast with the past: after the initial severe falls for all Latin American currencies, the bleeding has slowed in recent weeks. And, unlike what happened in the Great Recession (of the rich world) of 2008 and in the Latin American debt crisis of the 1980s, the bolt of the debt markets has been counted in weeks and not years. “It is surprising and positive,” says Ricardo Navarro, head of investment banking for the region of the Brazilian bank Itaú. "We do not see a systemic crisis, and although two of the three global defaults this year are from Latin American countries [Argentina and Ecuador], we can consider this chapter practically closed", completes Gorky Urquieta, who co-manages 21,000 million dollars in emerging countries in Neuberger Berman.
Financial stability seems to be guaranteed in the short term - no one has a total collapse on their roadmap and that, in a region that for years was going into crisis per decade, is already a lot - banks are more capitalized than in the past and ultra-low interest rates are the best lifeline: with bonds yielding zero (or negative) in half the world, any alternative that offers interest, even if it is at the cost of taking more risks, makes investors' eyes shine. Some markets flooded with liquidity are, in short, caviar for the ears of the region. Not just for the public sector: most large companies have also been able to avoid bankruptcy. "They have managed to protect their cash and have been able to reorganize and postpone payments," says Gustavo Méndez, from Deloitte. "SMEs have the problem." Again, the rope breaks on the most fragile side.
The outflow of capital, triggered during the hardest part of the pandemic, is history and foreign investment is also returning little by little. "The slightly higher prices of raw materials now [after the collapse in March] and the weak dollar suggest that the recovery will be somewhat faster than we saw a few months ago," Navarro closes. "In March and April everything looked very negative, and now some tail winds are beginning to be perceived." Some light among so many shadows; a ray of hope after a fateful streak for a region that needs to grow again, and quickly, to close its very deep social gaps. "If there is no rapid recovery of the economy, poverty will become entrenched again," ditch José Luis Machinea, former president of the Central Bank of the Argentine Republic. "That is the risk: that this setback is not a temporary downturn, but that it becomes something structural."
Remittances hold the type
The World Bank dropped the bomb in mid-April, with the lockdowns already in place and the worst economic forecasts in mind: the money sent by migrants to their families, it said, would plummet 20% in a year through the pandemic. The figure was to start trembling: millions of Latin Americans, especially in Mexico and Central America, depend entirely on what their relatives send them in North America or Spain. A new derivative had to be added to the humanitarian drama of the crisis. Four months later, however, the picture is different, quite different from the one drawn in spring: after the April crash, when many migrants were unable to leave their homes to send money to their countries of origin, in May, June and July - In the latter case, the data are still partial- the figures have returned to levels very close to those they looked before the pandemic. There are several causes behind this enormous capacity to resist in the face of the bite of the economic crisis on jobs. -and income- of the emigrants, according to all the specialists consulted. First, the willingness of migrants to put themselves in the shoes of their relatives and send more money when curves come. Second, very favorable exchange rates for the main currencies in the region, whose weakness against the euro and the dollar is another incentive to take advantage of and send more than they had anticipated. And third, and more importantly, the accumulated savings capacity in recent years, with unemployment in the US at a low of five decades. Remittances outlines Alejandro Canales, from the University of Guadalajara (Mexico) "are going from strength to strength." It is true that they have a delayed response to economic cycles, and that this can cause them to suffer in the medium term. But, unlike the 2008 crisis, this time the economic outlook is bad but temporary and the horizon for the recovery of income is much shorter ”. “There is”, completes Manuel Orozco, from Creative Associates, “a clear element of lesson learned: since the financial crisis of 2009, migrants have saved more than ever before and now they can continue to send money to their families.” Even with unemployment in In the US biting upward, remittances to Latin American countries already returned in June and July at positive rates. Orozco believes that the drop will not exceed 3% by the end of the year, far from the initial gloomy forecasts, and Canales slightly raises that number to 5%. “It surprises us, but only in part. It is something that we have already seen in previous crises and natural catastrophes: they understand that their help is essential and they continue to send everything they can ", emphasizes René Maldonado, coordinator of the Remittances and Financial Inclusion program at Cemla, an entity that encompasses the main Latin American central banks. The news on this front is encouraging, but Ramón Casilda, from the IEB and coordinator of the 2020 Latin American Consensus study, a roadmap for Latin America not only to get out of the hole of the pandemic and stagnation, prefers to take his effect on the full picture of the region: "It is very good that remittances continue to enter, but they cannot be a pillar of recovery at all."